Prime time to review Amazon's approach to video in developing markets

This is a contributed piece by Marco Veremis, CEO and co-founder of Upstream.

Amazon Prime Video has expanded its services to now cater to 200 countries worldwide, overtaking Netflix, which is available in 190 countries. For both video titans, India has been a particular focus. Whilst Netflix is leading the way with its partnership with Bollywood production house Red Chilies, Amazon has pledged to double its spending on localised content in India in 2017. This approach is important across developing markets. The findings from recent research Upstream commissioned in emerging markets revealed that 76% of consumers want their content to have some measure of local content, with 24% requiring the majority of the content to have a strong local feel.

While Amazon seems to have grasped the need to adjust content to reflect local preferences, the brand's universal price scheme and limited billing options highlight some of the common challenges western content-led brands face when taking steps to expand into emerging markets.

Which pricing strategy is appropriate?

Amazon Prime Video will cost either $2.99 or €2.99 per month, depending on the market. With this introductory price for the first six months Amazon looks to undercut Netflix and entice users during its initial sign up period, after which it will double to $5.99 or €5.99 across all countries. This is in contrast to Netflix, which offers basic differential pricing in many countries. While Amazon’s promotional strategy may look like a smart move, differential pricing can often prove a more effective model for long-term customer retention.

India recently became the second largest smartphone market in the world, and it appears that Amazon has taken the increase in smartphone ownership to signify an increase in disposable income to make paying around $6 a month to watch videos on their phones affordable. In practice, even Nigeria’s buoyant GDP per capita of $3,203 is 12 times smaller than the UK’s figure of $38,160. Brands need to be conscious of the disposable income differences that exist in emerging markets and price their product offering accordingly.

The reality for many consumers is that, while subscribing to Amazon Prime Video could be affordable, the cost of streaming video could be prohibitively expensive. 42% of respondents in our recent research found themselves having to buy additional data, beyond what they had planned for. Offering prices that reflect each market’s economic reality, will bring on board many more users, thereby offsetting the comparatively lower price.

Cash is still the King

In developing markets, credit and debit card penetration is low. 2.2 billion unbanked people live in Africa, Asia, Latin America and the Middle East. India is often seen as an attractive market because there are 400 million active debit cards, but 88% of the usage of these cards is exclusively to withdraw cash from ATMs, per McKinsey research. These consumers are not making card payments to access digital content.

In many of the 199 other markets Amazon is now available in, debit card penetration can be as low as 1% and digital wallets and other fintech solutions are still less popular than cash transactions. Mobile network operators hold the key to carrier billing, a ubiquitous payment method, open to everyone who owns a smart or feature phone. Consumers are comfortable with the concept of topping up their airtime balance with cash and they are happy to use this to pay for digital services.

Our research found that 45% of consumers in emerging markets prefer operator billing over other options. That said, given the relatively low average value of airtime balances in developing markets, the key for brands and mobile operators looking to optimise carrier billing charge success rates is micro-payments, whereby consumers are frequently charged smaller amounts, as opposed to larger “one-off” sums. Micro-payments prove to be a far better fit to consumers’ top-up patterns in developing markets.

Amazon may be making the right moves when it comes to making their content more relevant, but their initial expansion has highlighted that the brand is yet to implement a strategy which caters to the payment and affordability needs of consumers in developing markets. The brand’s approach of taking what has worked for their online ecommerce store, particularly regarding relying on payment cards and offering uniform pricing, and applying it to a subscription-based digital content service could prove to be a barrier to growth for Amazon’s video platform. To make the most of the opportunity available in developing markets, Amazon should look to forge relationships with local brands and local network operators, who can provide ubiquitous payment channels and key local knowledge that will be vital to the brand. Collaborating with a technology partner versed in these markets can be the difference needed to make expansion a success.